The economy is tanking and our Do Nothing Chancellor has made it clear he intends to remain a bystander. George Osborne made it clear in his speech to the Tory conference in Manchester that he intends to stick with his plan that was implemented when the world economy was growing fast, the euro area was doing just fine and the UK economy was delivering jobs. But that has all changed and now is the time to slow the pace of cuts and stimulate growth. New circumstances require new policies. But, sadly, this chancellor is not for turning.

The UK economy has grown by a feeble 0.2% over the last three quarters and the next two quarters may be even worse. Business and consumer confidence has collapsed and unemployment is rising. Osborne is increasingly sounding like the manager of the football team at the bottom of the league who insists he is going to stick with his failed plan come what may.

The announcements are small change and will not prime growth. I am pleased though that Osborne appears has taken on board the idea that Adam Posen and I have been pushing, of credit easing to help small firms obtain finance. Together we will certainly "ride out the storm", but it is going to be an unpleasant journey. After 13 years in opposition and 16 months in office the Tories still have no growth plan.

• David Blanchflower was an external member of the monetary policy committee at the Bank of England from June 2006 to May 2009

George Osborne and Gordon Brown have more in common than either would care to admit – namely, the use of their annual conference speech as chancellor to boost their standing in the party; the ruthless plundering of policy announcements that properly belong to their cabinet colleagues, the briefing of one big story for the media in the morning and the holding back of another until the speech itself.

All this has applied even when the stakes have been relatively low for the chancellor. They are especially high today: his deficit reduction targets are unlikely to be met, thunder clouds hang over the eurozone, and growth is faltering. The first part of his plan went to order: the morning papers were briefed this morning that council tax would be frozen. So did the second: for example, Jeremy Hunt, a potential leadership rival, saw a mobile phone mast extension swiped.

But did the chancellor do enough to persuade the country that he has a growth plan and the activists that he's a future leader? On growth, he was clearly holding back his major push for his November statement. On popularity, he didn't seek to match the populist showmanship of his main competitor, Boris Johnson, or his former boss, William Hague. In short, this was a deliberately sober speech: Osborne's mission was to sell the message that pain now will mean gain later. Its impact on voters will be very limited. And his pitch for the hearts of the activists will come another day.

One of the most striking parts of George Osborne's speech was his reference to "credit easing". This appears to be a clear acknowledgement that the chancellor wants to get money going directly to companies because of the difficulties the government is having in getting the banks – despite the taxpayer having bought £65bn of shares in two of them – to lend. He said:

"I have set the Treasury to work on ways to inject money directly into parts of the economy that need it such as small business. It is known as credit easing. It is another form of monetary activism. It is similar to the national loan guarantee scheme we talked about in opposition."

The loans could be short-term credit lines, overdrafts and other forms of credit and the national loan guarantee scheme was intended to be bigger than the small firms loan guarantee scheme that was already operating under Labour. At first glance it does not sound as groundbreaking as buying corporate bonds – a new twist to quantitative easing – and could end up being a bureaucratic nightmare.

One senior minister, asked yesterday if George Osborne was the shrewdest member of the government, did not hesitate before saying yes – pointedly ranking the chancellor ahead of the prime minister. Osborne's speech to the conference confirmed that what his colleagues admire about him is not his telegenic charm or rhetorical skills – he is lacking in both departments – but his political cunning, which was on show once more.

There were lots of examples but take just three. First, he cleverly made the case that "economic credibility", pursued via deficit reduction, was not some abstract goal born of ideological dogma, but one that ensures low interest rates, keeping "people in their homes". The passage showed that the chancellor had clocked where the government was vulnerable – that it risks looking as if it's making a fetish of the deficit – and that he needed to argue anew why cutting it was necessary.

Second, he knew he had to put down calls from the Tory right for tax cuts. Rather ingeniously he equated such demands with Labour's call for stimulus spending. "They are two sides of the same coin," he said, "a coin that has to be borrowed." In a sentence he had lumped a section of his own party in with Ed Balls, thereby discrediting them in the eyes of other Conservatives.

Third, and a clear demonstration that Osborne is all politics, was his seizing on the booing that greeted the mention of Tony Blair at last week's Labour conference. That was proof, he said, that the party had now turned its back on the "millions who thought Labour had changed" in the 1990s – and that those voters should now regard the Tories as their voice.

All of this was smart political tactics. But the long-term dangers remain. On growth, there was thin gruel indeed – the headline proposals on "credit

easing" will require lots more explaining – and by announcing that Britain will cut carbon emissions "no faster" than any other European country, he has shredded the original Cameron slogan of "Vote Blue, Go Green" and surely picked a fight with the Tories' Lib Dem partners. His colleagues will be hoping that the chancellor knows what he's doing – and that their own assessment of his shrewdness does not need to be revised.

George Osborne has a few problems – two in particular. First, he restated his determination to stick to his plan to eliminate the structural deficit by 2014/15. But it isn't working. At £15.9bn, the Tory-led government recorded the highest borrowing for a government in the month of August. During this parliament, forecast borrowing has already had to be revised up by £46bn. Nothing Osborne said today changes this.

Second, the chancellor is an ardent believer in expansionary fiscal contraction: the idea that as you retrench the public sector, the private sector will automatically and immediately step in to fill the gap. Recent statistics do not help him here either. ONS statistics show that while public sector employment fell by 111,000 between March and June 2011, private sector employment increased by just 41,000.

Ministers are so desperate to demonstrate growth they have taken to boasting that over 500,000 businesses have been created under their watch, when the reality is less than a quarter of this figure once business failures caused by their policies are taken into account.

What we do know is that by cutting too far and too fast, the government has dented confidence, which is holding back the business creation necessary to produce jobs and growth. Why not introduce a targeted VAT cut to 5% on home improvements and repairs to help homeowners and small businesses? How about a one-year national insurance tax break for every micro business taking on extra workers? We've been calling for this and more but will Osborne change course? The chancellor says "no" – that was the message of his speech.

• Chuka Umunna is the shadow minister for small business and enterprise

Bill Clinton, campaigning for the presidency, famously had a notice stuck on the wall of his campaign headquarters, "It's the economy, stupid". And so it is. Everything now rests on George Osborne's judgment. If the course he has chosen for the coalition is proved to be right, the government's job will get easier and Labour's more difficult. If it's wrong, vice versa. Almost nothing else in politics matters.

Events are proving more difficult than anyone worldwide could have imagined. But in so far as there are lessons from outside Britain, they confirm the chancellor's judgment, not undermine it. The US has tried Labour's strategy of more spending, less debt repayment – and it has made their situation worse, not better. People want a strategy for growth. But the only one that makes sense is getting the debt down first. Otherwise, those who make the decisions for what happens in our country will not be the elected government, but the markets. We have Greek levels of debt, but German interest rates. That is not a card to be thrown away lightly. This speech had broadly the right tone and substance. We have to stick to our course where it is necessary, help those who are worst off, like council house tenants, where it is possible and make enterprise, especially small enterprise, our priority as soon as we are able to do so. Anything else at this stage would make things worse, not better.

• Paddy Ashdown was leader of the Liberal Democrat party from 1988 to 1999

George Osborne is right to highlight the importance of deficit reduction and the risks of unsettling money markets by any shift from plan A. But in the coming weeks, the chancellor must unveil further plans for boosting growth.

The biggest opportunity is in leveraging more capital investment in infrastructure, including in power generation, road and rail links, housing and super-fast broadband. We need more detail on delivering these investments by the autumn statement.

The chancellor has some important proposals to help job creation. Small firms are sometimes put off taking on an extra employee because of the fear of ending up in front of an employment tribunal. Doubling the period for unfair dismissal rights and introducing a tribunal fee to prevent vexatious claims will give firms more confidence to hire.

Small firms need credit and, with the continuing eurozone crisis, banks can only do so much, so the proposal for credit easing to get money directly into the hands of smaller businesses could be just what the economy needs, if it can be made to work. But these are uncharted waters and these proposals need to be fully worked up as quickly as possible.

For businesses, one of the challenges to growth is rising energy costs, so manufacturers will be encouraged by the chancellor's commitment that cutting emissions will be no faster than our European competitors.